Supermarkets say profits enjoyed during the Covid-19 lockdown are being shattered by a cost of living crisis that is raising prices.
On Thursday, Sainsbury's said profits will be down this year as customers are “watching every penny”.
Bosses said they wanted to swallow some of the price rises on everyday products, as Unilever — the company behind Dove soap and Magnum ice cream — confirmed its higher prices had raised revenue but cut sales.
Unilever said in a trading statement its higher prices had turned off some customers, with volume of sales down one per cent.
“This period of unprecedented inflation requires us to take further pricing action with some impact on volume as a result,” said the group.
Sainsbury’s followed market leader Tesco in warning of a drop in profit this financial year as soaring inflation combines with below-inflation salary rises.
“It's early days, the first month with the (higher) fuel bills landing … But we can see the early signs of customers being a bit more cautious, watching every penny, every pound,” CEO Simon Roberts said.
Bosses revealed pre-tax profits for the 12 months to March 5 hit £854 million, compared with a £164 million pre-tax loss a year earlier. This was also a three-fold increase on pre-pandemic profits of £278 million.
Mr Roberts said: “We know just how much everyone is feeling the impact of inflation, which is why we are so determined to keep delivering the best value for customers.
“We have been able to drive more investment into lowering food prices funded by our comprehensive cost savings plans.
“As a result, we continue to inflate behind competitors on the products customers buy most often.
“Last week we announced the next bold phase of investment, lowering prices across 150 of our highest volume fresh products.”
The supermarket said profits would be reduced in the coming year as it cuts prices to help customers with the cost-of-living crisis.
But before reducing prices, it said shareholders would enjoy a dividend bonanza, with payouts of 13.1p per share — a jump of 24 per cent on a year ago.
The company's preferred profit measurement — underlying pre-tax profits, which strip out one-off costs — hit £730 million. However, the grocer warned this would be between £630 million and £690 million for the coming year.
“The year ahead will be impacted by significant external pressures and uncertainties, including higher operating cost inflation and cost of living pressures impacting customers' disposable incomes,” said Mr Roberts.
He also pointed out that Sainsbury's had spent £100 million on pay rises for staff, bringing their salaries up to the Real Living Wage.
Analysts see Sainsbury's as more challenged than other supermarket groups because of its ownership of the Argos general merchandise business — a subsector more exposed to pressure on consumers' disposable income.
Britain's inflation rate hit a 30-year high of 7 per cent in March and is expected to peak at nearly 9 per cent later this year. Food inflation hit 5.9 per cent in April, according to industry data.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
